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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14D-9
(Amendment No. 2)
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
----------------
MAGMA POWER COMPANY
(Name of Subject Company)
MAGMA POWER COMPANY
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $0.10 PER SHARE
(INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
(Title of Class of Securities)
0005591941
(CUSIP number of Class of Securities)
JON R. PEELE, ESQ.
Executive Vice President, Secretary and General Counsel
MAGMA POWER COMPANY
4365 EXECUTIVE DRIVE, SUITE 900
SAN DIEGO, CALIFORNIA 92121
(619) 622-7800
(Name, address and telephone number of person authorized to receive notice and
communications on behalf of the person(s) filing statement)
Copies to:
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Michael J. Kennedy, Esq. David W. Heleniak, Esq.
SHEARMAN & STERLING SHEARMAN & STERLING
555 California Street 599 Lexington Avenue
San Francisco, California 94104 New York, New York 10022
(415) 616-1100 (212) 848-4000
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This Amendment No. 2 amends and supplements the Solicitation/Recommendation
Statement on Schedule 14D-9, dated October 11, 1994, as amended (the "Schedule
14D-9"), filed by Magma Power Company, a Nevada corporation, relating to the
tender offer disclosed in a Tender Offer Statement on Schedule 14D-1 dated
October 6, 1994, as amended through the date hereof, of CE Acquisition Company,
Inc., a Delaware corporation and a wholly owned subsidiary of California Energy
Company, Inc., a Delaware corporation, to purchase 12,400,000 Shares at a price
of $35 per Share net to the seller in cash, upon the terms and subject to the
conditions set forth in the Offer to Purchase dated October 6, 1994, as amended
through the date hereof, and the related Letter of Transmittal and any
supplement thereto. Capitalized terms used and not defined herein shall have the
meanings set forth in the Schedule 14D-9.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
Item 8 is hereby amended and supplemented by adding thereto the following:
On October 17, 1994, Magma filed an Amended Complaint for Declaratory and
Injunctive Relief (the "Amended Complaint") against California Energy in the
action pending in the United States District Court for the District of Nevada
entitled Magma Power Co. v. California Energy Company, Inc., et. al., No.
-----------------------------------------------------------
CV-N-94-00719-DWH. In addition to restating its request for declaratory relief
regarding the validity of the Nevada Business Combination Statute and the
propriety of its decision to adopt the Rights Plan and Bylaw Amendment, the
Amended Complaint alleges that California Energy has violated the federal
securities laws by making a host of false and misleading statements in
connection with its tender offer and proxy solicitation. Magma further alleges
that California Energy has violated the federal securities laws by failing to
identify and provide necessary information concerning its co-bidders to acquire
Magma. Magma seeks, among other relief, a preliminary and permanent injunction
prohibiting California Energy and any and all persons acting on its behalf from
proceeding further with the tender offer and proxy solicitation unless and until
it provides full, forthright and corrective disclosures of all material facts
and Magma's shareholders have had sufficient time and opportunity to digest such
information.
A copy of the Amended Complaint is filed as Exhibit 13 hereto and is
incorporated herein by reference. The foregoing description of the Amended
Complaint is qualified in its entirety by reference to the Amended Complaint.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
Item 9 is hereby amended and supplemented by adding thereto the following:
Exhibit 13 -- Amended Complaint.
Exhibit 14 -- Press Release, dated October 17, 1994.
Exhibit 15 -- Advertisement placed in The Wall Street Journal, dated October
17, 1994.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Statement is true, complete and
correct.
MAGMA POWER COMPANY
/s/ Jon R. Peele
By:__________________________________
Name: Jon R. Peele
Title: Executive Vice President,
Secretary and General
Counsel
Dated: October 17, 1994
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INDEX TO EXHIBITS
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EXHIBITS
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Exhibit 13 --Amended Complaint.
Exhibit 14 --Press Release, dated October 17, 1994.
Exhibit 15 --Advertisement placed in The Wall Street Journal, dated
October 17, 1994.
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JANET L. CHUBB
Nevada Bar No. 176
M. CELESTE LUCE
Nevada Bar No. 4116
JONES, JONES, CLOSE & BROWN, CHTD.
290 South Arlington Avenue, #200
Reno, Nevada 89501
Telephone: (702) 322-3811
DEAN S. KRYSTOWSKI
PATRICK D. ROBBINS
DAVID L. ANDERSON
M.J. TONY PAIKEDAY
SHEARMAN & STERLING
555 California Street
San Francisco, California 94104
Telephone: (415) 616-1100
Attorneys for Plaintiff
Magma Power Company
UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA
MAGMA POWER COMPANY, )
a Nevada corporation, )
)
Plaintiff, ) No. CV-N-94-00719-DWH (N/A)
)
v. ) AMENDED COMPLAINT
) FOR DECLARATORY AND
CALIFORNIA ENERGY COMPANY, INC., ) INJUNCTIVE RELIEF
a Delaware corporation, and CE ) -------------------
ACQUISITION COMPANY, INC., a Delaware )
corporation, )
)
Defendants. )
_________________________________________)
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Plaintiff Magma Power Co. ("Magma"), through its undersigned counsel,
for its Amended Complaint alleges as follows:
NATURE OF THE CASE
------------------
1. This action seeks declaratory and injunctive relief to prevent
defendant California Energy Company, Inc. and its wholly owned acquisition
subsidiary, defendant CE Acquisition Company, Inc. (collectively, "California
Energy") from continuing to violate the federal securities laws in connection
with (a) its coercive, front-end loaded and highly conditional tender offer for
approximately 51% (12,400,000 shares) of Magma's outstanding common stock, and
(b) its proxy solicitation designed to obtain approval of its inadequate offer
regardless of the best interests of Magma, its shareholders, employees,
partners, customers and other constituencies. Through the proxy solicitation,
California Energy seeks to add four seats to Magma's Board of Directors (the
"Board"), to elect its hand-picked designees to those seats, and to amend
Magma's by-laws in a manner intended to provide California Energy and its
designees with veto power over any material business activity of Magma. In
effect, California Energy seeks to put Magma in a state of paralyzing gridlock,
where meaningful corporate action -- including such simple matters as executing
contracts with Magma's customers to enhance Magma's value to its shareholders
pursuant to its long-term strategic plan -- could be blocked by California
Energy. While its proposals pose a substantial threat to Magma, if successful,
California Energy's designees could enjoy the benefits of having access to
Magma's confidential information and strategic plan which, when combined with
their sought-after ability to thwart Magma's action, could allow California
Energy to obtain competitive advantages in the marketplace regardless of whether
any combination of Magma and California Energy is ever consummated.
2. None of these material facts, among many others, is disclosed by
California Energy. The federal securities laws, however, require California
Energy to provide full, fair and forthright disclosure of all material facts
necessary for Magma's shareholders to reach an informed decision with respect to
the tender offer and the proxy solicitation. As set forth more fully below in
paragraphs 26 through 30, in an effort to
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convince Magma's shareholders of the illusory benefits of California Energy's
offer and proposals, while ignoring their very real burdens, California Energy
has instead sought to avoid its disclosure obligations to gain control of Magma
at a bargain price that does not reflect Magma's intrinsic value and long-term
strategic promise. California Energy also seeks to punish Magma and its
shareholders if it is ultimately unsuccessful in its effort to control a
majority of Magma's Board by its target date of June 1995. In addition,
California Energy has failed to identify and provide critical information
concerning its co-bidder in these efforts, as explained below in paragraphs 10
and 11, and 26 through 28.
3. In so doing, California Energy has violated Section 14(a) of the
Securities and Exchange Act of 1934 (the "1934 Act"), 15 U.S.C. (S) 78n(a), and
Sections 14(d) and 14(e) of the Williams Act, 15 U.S.C. (S)(S) 78n(d), 78n(e),
and the rules and regulations of the Securities Exchange Commission (the "SEC")
promulgated thereunder. Unless California Energy and those acting in concert
with it are enjoined, Magma's shareholders will be misled concerning the offer
and proxy solicitation, will be forced to rely upon inadequate, incorrect and
incomplete information, and will be unable to make informed decisions critical
to Magma's future.
4. In addition to seeking an injunction against California Energy on
the basis of its misleading disclosures, Magma seeks declaratory relief
upholding the constitutionality of provisions of the Nevada General Corporation
Law applicable to unsolicited takeover bids for Nevada corporations, and
upholding the measured, carefully considered action of Magma and its Board to
protect Magma's shareholders in response to California Energy's coercive tender
offer and abusive takeover tactics.
5. The Nevada statutory provisions pertaining to business
combinations, Nev. Rev. Stat. (S)(S) 78.411-.444 ("Combinations with Interested
Shareholders") (hereinafter the "Business Combination Law"), reflect the Nevada
Legislature's intent to protect the shareholders of Nevada corporations from
combinations with persons or entities who, like California Energy, have not
obtained the advance approval of a corporation's board. The Business
Combination Law prohibits certain combinations between a Nevada corporation and
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any "interested shareholder," defined in general to include any person who
acquires 10% of a Nevada corporation's stock, for a three-year period unless the
"interested shareholder" has obtained the advance approval of the corporation's
board of directors. These provisions are intended, among other things, to
prevent bidders from effectuating combinations that the Board has determined are
not in the best interests of the company and its shareholders, as well as in the
interests of the company's employees, customers, suppliers and other
constituencies. In the absence of a friendly, negotiated merger, California
Energy has indicated that its tender offer is conditioned on the invalidation of
the Nevada Business Combination Law.
JURISDICTION AND VENUE
----------------------
6. Magma initiated this action on October 3, 1994 by filing a
Complaint for declaratory relief in the Second Judicial District Court for the
State of Nevada in and for the County of Washoe, which had jurisdiction over
this action pursuant to Nev. Const., Art. 6, (S) 6. Declaratory relief was
authorized under Nevada law by the Declaratory Judgments Uniform Act, Nev. Rev.
Stat. (S)(S) 30.010-.160. Venue was proper in Washoe County pursuant to Nev.
Rev. Stat. (S) 13.040.
7. Following the removal of this action to federal court by
California Energy on October 5, 1994, this Court has jurisdiction pursuant to 28
U.S.C. (S)(S) 1331, 1332, 1441(a). Declaratory relief is authorized under the
Declaratory Judgments Act, 28 U.S.C. (S) 2201(a). Venue is proper in this
District pursuant to 28 U.S.C. (S) 1391.
PARTIES
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8. Plaintiff Magma is a Nevada corporation doing business in, among
other locations, the states of Nevada and California and in certain foreign
countries, including those along the Pacific Rim. Magma is principally engaged
in the generation of electricity from geothermal resources, and in the
acquisition of, exploration for and development of geothermal resources.
Geothermal energy is a clean, renewable and sustainable energy source compared
to fossil fuel-based energy sources. Magma's common stock is traded on the
NASDAQ Stock Exchange under the symbol "MGMA." In the recent
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past, Magma's common stock has traded at $41.50 per share -- substantially above
the $35 of purported "value" California Energy is offering -- and certain
analysts have placed current values on Magma's common stock in excess of $42 per
share. Magma's principal executive offices are located at 4365 Executive Drive,
Suite 900, San Diego, California 92121.
9. Defendant California Energy is a Delaware corporation doing
business in Nevada, Utah and California, among other states, and in certain
Pacific Rim countries. California Energy is primarily engaged in the ownership
and operation of geothermal resources, and the ownership and operation of
independent power production facilities utilizing geothermal resources and other
energy sources. California Energy's common stock is traded on the New York
Stock Exchange, Pacific Stock Exchange and London Stock Exchange under the
symbol "CE." California Energy's principal executive offices are located at
10831 Old Mill Road, Omaha, Nebraska 68154. Defendant CE Acquisition Company,
Inc. is a Delaware corporation and wholly owned subsidiary of California Energy
formed solely for the purpose of acquiring Magma. It has conducted no business
other than in connection with California Energy's tender offer and proxy
solicitation, and its three directors are also directors and/or senior
executives of California Energy.
10. The operations and decisions of California Energy, including its
decision to commence the tender offer and proxy solicitation, are heavily
influenced by Peter Kiewit Sons', Inc. and its wholly owned subsidiary, Kiewit
Energy Company (collectively "Kiewit"). According to the Offer to Purchase
annexed to the Schedule 14D-1 filed by California Energy with the SEC on or
about October 6, 1994, Kiewit owns approximately 43% of California Energy's
stock on a fully-diluted basis. The Offer to Purchase, as well as California
Energy's other public filings, also reveal that senior executives of Kiewit,
including Kiewit's Chairman and President, its Executive Vice-President, and the
Chairman and Chief Executive Officer of a Kiewit subsidiary, are members of
California Energy's Board of Directors. In addition, California Energy's
Chairman, President and Chief Executive Officer, and its Senior Vice-President
of Operations, are former Kiewit executives.
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11. In connection with its attempt to gain control of Magma,
California Energy has expressly touted the purported "expertise and
capabilities" of Kiewit, and its Offer to Purchase indicates that Kiewit is a
"joint venture participant in a number of [California Energy's] international
private power projects," although the Offer to Purchase provides no material
facts concerning those joint ventures, the terms thereof or the economic
benefits Kiewit derives from them (which may further increase Kiewit's economic
and other influence over California Energy above 43%). As explained below,
under the circumstances Kiewit should be considered a co-bidder in connection
with the Offer to Purchase, and California Energy should be required to provide
to Magma's shareholders all information regarding Kiewit required by Section
14(d) of the Williams Act. Moreover, even if Kiewit is not deemed to be a co-
bidder under Section 14(d), California Energy should be required to reveal all
material facts concerning its business dealings with Kiewit to enable Magma's
shareholders -- who, as explained below, are being offered California Energy
stock as part of the consideration in the merger California Energy has
proposed-- to determine whether the arrangements are fair, and whether any
combination of Magma and California Energy would principally benefit Magma's
shareholders or principally benefit Kiewit.
THE UNSOLICITED OFFER TO ACQUIRE MAGMA
--------------------------------------
12. On September 19, 1994, California Energy delivered to Magma an
unsolicited "bear hug" letter declaring its intention to acquire the outstanding
shares of Magma common stock for a purported figure of $35 per share, consisting
of $25 in cash and securities of California Energy nominally valued at $10 per
share. While purportedly expressing California Energy's desire that the
proposed transaction be consummated amicably, California Energy warned that it
was reserving its right to approach Magma's shareholders directly with a tender
offer and/or a consent solicitation if Magma failed to "respond to this proposal
promptly." California Energy provided no other information concerning its
unsolicited offer, including the effect a combination of the two entities would
have on Magma, its shareholders, employees, customers, partners and operations,
the effect it would have on Magma's long-term strategic plan and the benefits to
shareholders flowing
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from such plan, the impact the proposed transaction would have on Magma's
existing business and prospects, both domestically and overseas, the sources of
information upon which California Energy had relied in making its proposal, and
the sources and certainty of California Energy's ability to finance its
proposal, among many other materials facts necessary to evaluate California
Energy's offer.
THE ACTIONS TAKEN BY MAGMA'S BOARD
TO PROTECT MAGMA'S SHAREHOLDERS
-----------------------------------
13. Promptly after receipt of the unsolicited offer, Magma retained
the investment banking firm of Goldman, Sachs & Co. as well as outside legal
advisors to assist it and its Board in analyzing the proposal and its impact on
Magma, its shareholders and other constituencies. As that analysis was being
undertaken, California Energy repeated its intentions on September 26, and
sought to hurry Magma into making a rushed and indiscriminate decision
concerning California Energy's unsolicited bid. While purporting to reiterate
California Energy's desire to proceed amicably, California Energy unequivocally
stated its intention to "move forward" and to "take this matter directly to
Magma's shareholders." California Energy also repeated its threat to commence a
tender offer for Magma's shares during the week of October 3, 1994 regardless of
Magma's Board's evaluation and regardless of the best interests of Magma's
shareholders, employees, customers, partners, business operations and strategic
plan.
14. The members of Magma's Board, who have been in consultation with
Magma's senior management and its financial and legal advisors since California
Energy's September 19 "bear hug" letter, convened a special meeting of the Board
on October 2 and October 3, 1994. The Board engaged in extensive discussion and
consideration of California Energy's proposal, and received thorough
presentations from its financial and legal advisors. In light of that
evaluation, the threats posed to Magma and its shareholders by California
Energy's proposal, the need to have the opportunity to evaluate properly and
fully the best interests of Magma and its shareholders under various
alternatives, including remaining independent and managing Magma in accordance
with its long-term business plan, the Board
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took steps carefully designed to protect shareholders from coercive partial
tender offers, such as the one California Energy had threatened to commence and
has since commenced, as well as other abusive tactics that might be used in an
attempt to gain control of Magma without paying all shareholders a fair price
for their shares.
15. First, the Board adopted a Stockholder Rights Plan which provides
for the distribution of rights to Magma's shareholders. Under the Plan, the
rights will become exercisable (i) 10 business days after a person or group (an
"Acquiring Person") acquires beneficial ownership of 10% or more of Magma's
outstanding common stock, or (ii) 10 business days (or such later date as may be
determined by a majority of the independent members of the Board) after a person
or group commences a tender offer for 20% or more of Magma's shares. The
holders of the rights (generally all Magma shareholders except the person or
group acquiring beneficial ownership of 10% or more of Magma's outstanding
common stock or who has commenced the tender offer) will be entitled to purchase
a newly-issued unit of Series A Preferred Stock (a "Unit") for $125. If any
person becomes an Acquiring Person, then the rights will become exercisable for
Units with a value equal to $250 (twice the exercise price of the rights). In a
subsequent merger with the 10% stockholder, holders of rights would be similarly
entitled to purchase common stock of the 10% stockholder with a value equal to
$250 (twice the exercise price of the rights). The rights, which are redeemable
under certain circumstances, including independent director approval of a
transaction, are designed to provide the Board, in the discharge of its
fiduciary duties, with sufficient time to evaluate alternatives and to guard
against coercive, partial tender offers and other abusive tactics that might be
used in an attempt to gain control of Magma. At the October 10, 1994 meeting of
Magma's Board described more fully below, the Board delayed the distribution
date for the rights with respect to the California Energy offer until such time
as the Board determines or until the date California Energy becomes an Acquiring
Person.
16. Because the Stockholder Rights Plan makes any hostile acquisition
of Magma substantially more expensive if the rights are triggered, the effect of
the Stockholder
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Rights Plan is to encourage suitors to negotiate with Magma's Board, and to
discourage suitors who make coercive or abusive bids that are contrary to
Magma's long-term interests and that of its shareholders. In short, the
Stockholder Rights Plan will not prevent takeovers, but is designed to deter
coercive takeover tactics. A Stockholder Rights Plan is expressly authorized and
permitted by Nevada Corporate Law.
17. Second, the Board voted to amend Magma's by-laws to require that
shareholder action occur only at a regular or special meeting of shareholders
rather than by way of written consent solicitation (the "By-Law Amendment").
The purpose of this provision is to ensure that shareholders take action only on
a fully-informed basis; the provision does not eliminate the power of Magma's
shareholders to call a special meeting.
THE PARTIAL, INADEQUATE AND COERCIVE TENDER OFFER
-------------------------------------------------
18. California Energy commenced its tender offer on October 6, 1994.
The offer is a two-tiered, coercive, highly conditional bid made without any of
the financing necessary to consummate the offer in place. Such coercive offers
have been universally criticized by the courts and commentators. According to
the Offer to Purchase, California Energy seeks to acquire approximately 51% of
Magma's common stock in the tender offer for $35 in cash. In a subsequent back-
end merger, California Energy states that all Magma shareholders who did not
tender into the offer, but who have nonetheless lost control of their company,
will be forced to receive a mix of cash and California Energy securities such
that the total average price paid by California Energy for all of Magma's stock
is equal to $25 in cash and $10 in California Energy securities.
19. Although California Energy has not disclosed it in the Offer to
Purchase, its proposal means that the shareholders who own 49% of Magma's stock
will receive less than $15 in cash, and California Energy securities nominally
valued at $20, in the back-end merger. Given that California Energy is already
highly leveraged, and that the combined entity will be even more highly
leveraged if the tender offer succeeds, it is doubtful that California Energy
securities nominally valued at $20 will be worth anywhere near that amount in
the back-end merger or will sustain that value going forward. In short,
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California Energy has purposefully structured its tender offer to intimidate
Magma shareholders to tender now so as to avoid receiving the illusory value
associated with the back-end merger.
20. In addition to being inherently coercive, the tender offer is
highly conditional, containing no less than thirteen conditions which California
Energy has or may elect in the future to impose in its sole discretion. Among
other conditions, the tender offer is subject to California Energy's ability to
obtain financing, although no financing has yet been arranged nor has California
Energy obtained a commitment letter from a bank or lending group indicating that
any financing is forthcoming. To the contrary, California Energy can do no
better than to offer the bald conclusion of its financial advisor that it
"believes" -- on no apparent basis, and certainly none that is disclosed -- that
financing will be available at some unspecified future time. In addition to the
financing and other conditions, the tender offer is conditioned upon California
Energy shareholder approval, which according to the Offer to Purchase will not
be obtained until at least mid-November, the execution of a friendly merger
agreement, which simply will not occur given the inadequate price California
Energy has offered, and a condition that no material right of Magma be impaired
as a result of California Energy's proposal, which is troublesome because a
number of Magma's important overseas partners have voiced concern with respect
to an acquisition of Magma by California Energy.
21. California Energy's tender offer also does not begin to reflect
Magma's intrinsic value and long-term strategic promise. Indeed, California
Energy's offering price is substantially below analysts' current estimates of
the value of Magma's shares.
THE BOARD'S REJECTION OF CALIFORNIA
ENERGY'S INADEQUATE, COERCIVE BID
-----------------------------------
22. After receiving California Energy's tender offer materials,
Magma's Board and its financial and legal advisors engaged in an extensive and
thorough analysis of the offer and the impact it would have on Magma's
shareholders, business operations, customers, employees and other
constituencies. At a special meeting of the Board on
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October 10, the Board voted unanimously to reject California Energy's offer.
Based on, among other things, the presentations of Magma's management and
Goldman Sachs and the Board's knowledge of and familiarity with Magma's
businesses, financial condition and future prospects and with California Energy
and its management, the Magma Board determined that it was in the best interests
of Magma and its stockholders to continue to pursue its long-term business
strategy as an independent company. The Magma Board also found the offer to be
inadequate.
23. In reaching its determinations with respect to the offer, the
Magma Board took into account numerous factors discussed at its October 2 and 3
Board meeting and its October 10 Board meeting, including, among other things,
the following:
(a). Its familiarity with Magma Power's businesses, financial
condition and future prospects and the opportunities that the company has to
reap substantial benefits in the future from the various strategic initiatives
which the company has implemented over the past several years, which benefits
should be for Magma and its shareholders, not California Energy;
(b). The fact that the company has been successfully pursuing a
carefully structured long-term business plan, and the Board's belief that
pursuit of this plan will produce greater long-term value for shareholders than
California Energy's offer;
(c). California Energy's high degree of leverage, and the even higher
degree of leverage contemplated by the offer for a combined Magma/California
Energy business;
(d). The fact that the proposal by California Energy is a two-tiered,
front-end loaded, highly leveraged and coercive transaction, in that the
proposal is intended to intimidate shareholders to tender their shares to the
offer so as to avoid receiving in the back-end merger primarily common stock of
California Energy, which would (i) be nominally valued at approximately $20 per
share, (ii) be issued by an even more highly leveraged California Energy, and
(iii) not provide any ongoing protections for holders of those shares;
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(e). The Board's understanding of California Energy's business,
financial condition and prospects;
(f). The highly conditional nature of the offer, particularly the
conditions requiring (i) California Energy to obtain financing, given that in
the Offer to Purchase California Energy can provide no more comfort than its
financial advisor's "belief" that its financing will be available on a timely
basis, (ii) California Energy shareholder approval, given that the Offer to
Purchase indicates the approval will not be obtained until mid-November at the
earliest, (iii) the execution of a friendly merger agreement, given the
inadequate price offered, and (iv) that no material contractual right of the
company be impaired as a result of California Energy's proposal;
(g). The opinion of Goldman Sachs that the consideration provided for
in the offer is inadequate; and
(h). The disruptive effect the offer, and a subsequent merger, could
have on the company and on the company's employees, creditors, partners and
customers and the communities in which the company operates.
CALIFORNIA ENERGY'S PROXY SOLICITATION
--------------------------------------
24. On October 13, 1994, California Energy filed its Preliminary
Request Solicitation Statement to Stockholders of Magma Power Company (the
"Proxy Statement") on Schedule 14A with the SEC. According to these materials,
the stated purpose of the proxy solicitation is to facilitate consummation of
California Energy's coercive, highly conditional tender offer. To accomplish
that objective, California Energy intends to solicit proxies from shareholders
owning a majority of Magma's shares issued and outstanding as of an unspecified
"record date" which, if obtained, would enable California Energy to call a
special meeting of shareholders. In connection with that meeting, California
Energy states that it will propose, among other things: (a) to expand Magma's
Board from 11 to 15 seats, to nominate and seek to elect its own unidentified
designees to the newly-created Board seats, and to have these designees
committed to seeking consummation of California Energy's tender offer and
subsequent back-end merger; and (b) to amend Magma's by-laws to require
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that at least one of California Energy's designees approve a wide variety of
business activities of Magma, including the entering into of any material
commitments or contracts, the issuance of securities, the disposition of assets,
the taking of "certain" but unspecified compensation, benefit and employment
actions, as well as "certain" but unspecified incurrences of debt or liens.
25. As explained below, California Energy's Schedule 14A, Proxy
Statement and public statements have been designed to mislead Magma's
shareholders about the impact of its proposals and the threats they pose to
Magma, its shareholders, business operations and future prospects. As detailed
below, California Energy should be enjoined from proceeding with its proxy
solicitation unless and until it truthfully sets forth all material facts
concerning its proposals.
CALIFORNIA ENERGY'S FAILURE TO
IDENTIFY ITS CO-BIDDER OR PROVIDE OTHER
MATERIAL INFORMATION REGARDING KIEWIT
-------------------------------------
26. The Williams Act, 15 U.S.C. (S) 14(d)(1), prohibits the
commencement of a tender offer unless the "person" who makes the offer files
with the SEC information it has "prescribed as necessary or appropriate in the
public interest or for the protection of investors." When two or more persons
act as a syndicate or group, they must file the requisite information. Acting
pursuant to its authority, the SEC has promulgated Rule 14d-3(a), 17 C.F.R. (S)
240.14d-3(a), which requires each "bidder" to file a Schedule 14D-1 disclosing
its identity, background, source of funds, purposes and plans with respect to
the target. A "bidder" is defined to include "any person who makes a tender
offer or on whose behalf a tender offer is made." Rule 14d-1(c)(1), 17 C.F.R.
(S) 240.14d-1(c)(1). The statute and rules ensure that the target's
shareholders receive critical information concerning all persons involved in the
offer to enable them to make an informed decision whether to tender or hold
their shares. This information is all the more vital where, as here, part of
the consideration to be received by 49% of Magma's shareholders in the back-end
merger is in the form of California Energy stock. Under such circumstances, it
is imperative that all relevant information concerning the persons behind the
offer --including, Kiewit -- is
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provided so that Magma shareholders will, in effect, know what they are getting
into if the two entities are merged.
27. Unfortunately, California Energy has elected to conceal the
necessary information concerning Kiewit. Other than stating that Kiewit owns
43% of California Energy's stock on a fully-diluted basis, indicating that
Kiewit representatives serve on California Energy's board, and providing
biographical information regarding Kiewit's executive officers and directors,
California Energy's Schedule 14D-1 tells shareholders nothing about Kiewit's
background, source of funds, purposes or plans, or the benefits it expects to
receive through a combination of Magma and California Energy, including the
benefits vaguely referred to in California Energy's September 19, 1994 letter to
Magma, which is copied verbatim in the Offer to Purchase annexed to California
Energy's Schedule 14D-1 and in the Proxy Statement annexed to its Schedule 14A.
Similarly, the offer tells shareholders nothing about the transactions between
California Energy and Kiewit, including information necessary for Magma
shareholders to determine whether the terms of those arrangements would be fair
to the combined entity or unduly advantageous to Kiewit, and whether those
arrangements further increase Kiewit's influence over the economic and business
affairs of California Energy. In short, no information is provided for
shareholders to determine whether a combined Magma and California Energy will be
good principally for them, or whether it instead will be good principally for
Kiewit and the "sweetheart" arrangements it may have with California Energy.
Such information is not only required under Section 14(d), but are material
facts respecting the tender offer and proxy solicitation which should be
disclosed under Sections 14(a) and 14(e).
28. Without complete information about the relationships and motives
of Kiewit, no informed decision about the tender offer and proxy solicitation
can be made by Magma's shareholders.
13
<PAGE>
ADDITIONAL FALSE AND MISLEADING STATEMENTS
AND OMISSIONS MADE BY CALIFORNIA ENERGY
IN CONNECTION WITH ITS TENDER OFFER
------------------------------------------
29. California Energy's Offer to Purchase, Schedule 14D-1 and other
public statements made in connection with the tender offer reveal a pattern of
misstatements, misinformation and half-truths. Section 14(e) of the Williams
Act, however, forbids untrue statements of material fact, as well as omissions
of material fact necessary in order to make any statements made, in light of the
circumstances in which they were made, not misleading, in connection with a
tender offer. California Energy has violated Section 14(e) by, among other
things:
(a). failing to provide all necessary information concerning Kiewit in
its Offer to Purchase and Schedule 14D-1;
(b). falsely stating in its Offer to Purchase and Schedule 14D-1 that
Magma's customers have had a "highly favorable" reaction to California Energy's
tender offer when, in fact, a number of Magma's key partners have voiced concern
over any combination of the two entities;
(c). falsely suggesting in its Offer to Purchase, Schedule 14D-1 and
other public statements that Magma and California Energy have recently been
negotiating a possible merger when, in fact, the only merger discussions that
have ever occurred between the two companies terminated more than three years
ago;
(d). falsely stating in its Offer to Purchase and Schedule 14D-1 that
the tender offer is made solely on the basis of publicly available information
when, in fact, California Energy has had access to confidential information
concerning Magma and its assets;
(e). failing to disclose in its Offer to Purchase and Schedule 14D-1
that, in connection with discussions between Magma and California Energy in May
1991, California Energy was furnished with confidential information concerning
Magma and had signed a confidentiality agreement prohibiting the misuse of such
information;
14
<PAGE>
(f). failing to disclose in its Offer to Purchase, Schedule 14D-1 or
other public statements that California Energy is in possession of confidential
information concerning certain assets now owned by Magma which was furnished to
California Energy by the Union Oil Company of California, Inc. ("Unocal") under
the terms of a confidentiality agreement in connection with Unocal's sale of
those assets. Magma was the successful buyer of the assets;
(g). failing to disclose in its Offer to Purchase, Schedule 14D-1 or
other public statements that California Energy's high degree of leverage, and
the even higher degree of leverage contemplated by its tender offer for a
combined Magma/California Energy business, will imperil the operations of the
combined entity, particularly at a time when it will need a substantial cash
infusion to protect its business operations;
(h). failing to disclose in its Offer to Purchase, Schedule 14D-1 and
other public statements that non-tendering shareholders will receive less than
$15 in cash, and securities nominally valued at $20, in the back-end merger;
(i). falsely stating in its Offer to Purchase, Schedule 14D-1 and
other public statements that non-tendering shareholders will receive a mixture
of cash and California Energy securities in the back-end merger equivalent in
value to the $35 in cash tendering shareholders will receive. In fact, the
securities being offered in the back-end merger are likely to be worth
substantially less than their $20 in nominal value or will not sustain that
value going forward, and hence the back-end merger will be less valuable than
the front-end;
(j). falsely implying in its Offer to Purchase and Schedule 14D-1 that
Magma shareholders who receive California Energy shares in the back-end merger
will be protected by a "collar" device, which will provide a range of maximum
and minimum prices for California Energy's common stock, without revealing the
precise range California Energy intends to utilize. By failing to reveal such
basic information, California Energy has sought to heighten the coercive nature
of its tender offer by leaving Magma's shareholders uncertain as to the actual
value of the consideration to be paid in the back-end merger;
15
<PAGE>
(k). falsely stating in its Offer to Purchase and Schedule 14D-1 that,
by tendering their shares, Magma shareholders will express to the Magma Board
their desire to see a merger of Magma and California Energy. In fact, tendering
shareholders will be acting in response to the coercive nature of California
Energy's tender offer to avoid the threat that they will receive an undisclosed
mix of cash and securities of indeterminate value in the back-end merger;
(l). failing to disclose in its Offer to Purchase, Schedule 14D-1 and
other public statements any facts to support the conclusion of California
Energy's financial advisor that it "believes" that the required financing will
be available on a "timely basis," and failing to disclose what California Energy
views as a "timely basis";
(m). falsely stating in its Offer to Purchase, Schedule 14D-1 and
other public statements that California Energy will be seeking four seats on
Magma's Board to ensure a "full and fair hearing" on its tender offer when, in
fact, any representatives of California Energy on Magma's Board will be
committed to the offer regardless of the interests of Magma, its shareholders,
employees, customers, partners and other constituencies;
(n). falsely implying in its Offer to Purchase, Schedule 14D-1 and
other public statements that California Energy has taken "preliminary steps" to
commence a proxy contest by requesting and obtaining a Magma shareholder list
when, in fact, California Energy is not entitled to request a shareholder list
under Nevada law until it has been a Magma shareholder for six months, which
will occur on or about March 15, 1995, and any proxy materials it prepares will
be distributed by Magma pursuant to the federal proxy rules;
(o). falsely stating on October 10, 1994 that Magma's Board has sought
to entrench itself by taking steps to protect shareholders, including the
adoption of the Stockholder Rights Plan, when in fact Magma's Board consists
almost entirely of outside directors (who have 9 of 11 Board seats) who have no
incentive to "entrench" themselves. Such statements are further misleading
because, when casting aspersions on Magma's
16
<PAGE>
Stockholder Rights Plan, California Energy has failed to reveal that is board of
directors has also adopted a Stockholder Rights Plan;
(p). falsely stating to the financial press, in articles published on
October 11, that the combined entity will have $200 million in free cash on its
balance sheet after the merger when, in fact, it will have substantially less;
(q). failing to disclose in its Offer to Purchase, Schedule 14D-1 and
other public statements how it intends to accomplish supposed synergies arising
from the merger it has proposed. California Energy has disclosed nothing about
its present intention toward Magma's operations, assets and human resources.
The Offer to Purchase attempts to mask the absence of meaningful information
with legalese, claiming that California Energy "has no present plans or
proposals which relate to or would result in . . . any material changes in the
Company's corporate structure or business or the composition of the Company's
Board or the Company's management or personnel." In other sections of the Offer
to Purchase, however, California Energy appears to reveal just such an intention
based on claims of supposed "synergies" and "higher value" as a consequence of
the parties' purportedly "unique fit." Magma's shareholders are entitled to
know how California Energy intends to capture "synergies" or "value" to ensure,
among other things, that such claims are realistic, that the shareholders who do
not tender but are forced to receive California Energy securities in a back-end
merger have meaningful facts concerning the prospects of the combined entity,
and to ensure that "synergies" is simply not a code word for action taken at the
expense of Magma's employees, customers, and other constituencies; and
(r). falsely stating in its public statements that the combined costs
to Magma's shareholders of the payments under certain of Magma's severance
agreements, the Goldman Sachs advisory fee and litigation expenses associated
with responding to California Enegy's offer would total between $.75 and $1.00
per share (between $18 million and $24 million). In fact, it is clear from the
severance agreements and Goldman Sachs' fee arrangements -- all of which are
publicly available -- that the payments will be nowhere close to those amounts.
Cash payments under the severance agreements (assuming all were
17
<PAGE>
triggered) would amount to approximately $5 million. California Energy would
have to be paying between $52 and $63 per share for Magma common stock in order
for Magma's costs under the severance agreements and Goldman Sachs fee
arrangement to reach the levels alleged by California Energy. Adding litigation
costs, which Magma has been forced to incur to protect is shareholders from
California Energy's illegal conduct, would not significantly alter that result.
ADDITIONAL FALSE AND MISLEADING STATEMENTS
AND OMISSIONS MADE BY CALIFORNIA ENERGY
IN CONNECTION WITH THE PROXY SOLICITATION
------------------------------------------
30. California Energy's Proxy Statement, Schedule 14A and other
public statements made in connection with the proxy solicitation similarly
reveal a pattern of deceit. Section 14(a) of the 1934 Act forbids such untrue
statements of material fact, as well as omissions of material fact, in
connection with a proxy solicitation. California Energy has violated Section
14(a) by, among other things:
(a). repeating in the Proxy Statement, Schedule 14A and other public
statements each of its false and misleading statements made in connection with
the tender offer, as set forth above in paragraphs 29(a)-(r);
(b). failing to disclose in the Proxy Statement, Schedule 14A and
other public statements that its proposals, if approved, could provide
California Energy and its designees with a blocking position over fundamental
corporate action by Magma regardless of the best interests of Magma, its
shareholders, employees, partners, customers, business operations and long-term
strategic plan, and that California Energy will seek to use that position to
veto any action to enhance Magma's value which in any way interferes with
California Energy's own interests, including its interest in consummating its
tender offer at an inadequate price;
(c). failing to disclose in its Proxy Statement, Schedule 14A and
other public statements that its proposals, if approved, could place Magma in a
state of perpetual gridlock, with California Energy and its designees
unilaterally seeking to prevent the overwhelming majority of Magma's Board from
operating the company in the best interests
18
<PAGE>
of all of Magma's shareholders and other constituencies, even though California
Energy owns only about 1% of Magma's common stock, which it acquired just a few
weeks ago in anticipation of its attempt to acquire Magma at an inadequate
price;
(d). failing to disclose in its Proxy Statement, Schedule 14A and
other public statements that its proposals, if approved, could provide
California Energy and its designees with the ability to prevent Magma from
operating as a vigorous competitor, which could damage Magma and its
shareholders while enhancing the business and competitive position of California
Energy;
(e). failing to disclose in its Proxy Statement, Schedule 14A and
other public statements that its proposals, if approved, could provide
California Energy and its designees with access to non-public information
concerning all aspects of Magma's business, operations, assets and technology
even though there is no certainty that any combination of Magma and California
Energy will eventually be consummated, and which could present a significant
threat to Magma's business and future prospects while unfairly enhancing
California Energy's business and future prospects;
(f). failing to disclose in its Proxy Statement, Schedule 14A and
other public statements that its proposals, if approved, could preclude Magma's
shareholders from realizing the substantial benefits, value and promise of
Magma's long-term strategic plan, which are substantially more valuable than
California Energy's offer and could instead be usurped by California Energy;
(g). failing to disclose in its Proxy Statement, Schedule 14A and
other public statements that its proposals, if approved, could preclude other
parties who may be interested in making a superior offer for Magma from coming
forward or succeeding because no such transaction would be approved by
California Energy and its designees on Magma's Board, who by California Energy's
own admission will be committed to its inadequate offer;
(h). falsely stating in its Proxy Statement, Schedule 14A and other
public statements that Magma's Board and management have entered into "golden
parachute" employment contracts in response to California Energy's tender offer
when, in fact,
19
<PAGE>
agreements of this type are similar to those entered into by thousands of
corporations, possibly including California Energy, and were authorized by
Magma's Board in November 1993 following a thorough analysis and recommendation
by the Board's Compensation Committee;
(i). falsely stating to the financial press that Magma has interfered
with California Energy's proxy solicitation by unlawfully "refusing" to provide
California Energy (and one of its directors) with a copy of Magma's shareholder
list when, in fact, Magma has expressly advised California Energy that it will
comply with Rule 14a-7 of the federal proxy rules by disseminating California
Energy's proxy materials to shareholders. California Energy's statements are
further misleading because, under Nevada law, it is not eligible to review a
shareholder list until it has owned Magma shares for at least six months, which
will not occur until March 15, 1995; and
(j). falsely stating in its Proxy Statement and Schedule 14A that it
has the power to set the "record date" when, in fact, California Energy has no
such power.
FIRST CAUSE OF ACTION
---------------------
(Declaratory Judgment)
---------------------
31. Magma incorporates by reference paragraphs 1 through 30
inclusive, as though fully set forth herein.
32. Magma is informed and believes that California Energy will
imminently file suit seeking declaratory and injunctive relief against the
application and enforcement of the Nevada Business Combination Law, the
provisions of which would, inter alia, otherwise prohibit any combination of
----- ----
Magma with California Energy not approved by Magma's Board for a period of three
years from the date such tender offer is consummated, on the ground that the
Nevada statute constitutes an undue burden upon interstate commerce and is
therefore in conflict with the Commerce Clause of the United States
Constitution, Art. I, (S) 8, cl. 3. Indeed, absent a negotiated merger
agreement, one of the many conditions imposed or to be imposed by California
Energy in its Offer to Purchase and Schedule 14D-1 is a determination that the
Nevada Business Combination Law is invalid or inapplicable to its
20
<PAGE>
tender offer. Magma contends that the Nevada statute is -- like similar statutes
that have been upheld in other states -- valid and binding upon California
Energy with respect to the proposed transaction.
33. An actual controversy has arisen and therefore now exists between
Magma and California Energy concerning the validity of Nev. Rev. Stat.
(S)(S) 78.411-.444.
SECOND CAUSE OF ACTION
----------------------
(Declaratory Judgment)
---------------------
34. Magma incorporates by reference paragraphs 1 through 33
inclusive, as though fully set forth herein.
35. Magma is informed and believes that California Energy will
imminently file suit seeking declaratory and injunctive relief against the
application and enforcement of the Nevada Business Combination Law on the ground
that the Nevada statute conflicts with the purposes of a federal statute
regulating tender offers, the Williams Act, 15 U.S.C. (S)(S) 78m(d)-(e), 78n(d)-
(f), and alleging that the Nevada statute is therefore invalid under the
Supremacy Clause of the United States Constitution, Art. VI, cl. 2. Indeed,
absent a negotiated merger agreement, one of the many conditions imposed or to
be imposed by California Energy in its Offer to Purchase and Schedule 14D-1 is a
determination that the Nevada Business Combination Law is invalid or
inapplicable to its tender offer. Magma contends that the Nevada statute is --
like similar statutes that have been upheld in other states -- valid and binding
upon California Energy with respect to the proposed transaction.
36. An actual controversy has arisen and therefore now exists between
Magma and California Energy concerning the validity of Nev. Rev. Stat.
(S)(S) 78.411-.444.
THIRD CAUSE OF ACTION
---------------------
(Declaratory Judgment)
----------------------
37. Magma incorporates by reference paragraphs 1 through 36
inclusive, as though fully set forth herein.
38. Magma is informed and believes that California Energy will
imminently file suit seeking declaratory and injunctive relief against the
application and enforcement of the Stockholder Rights Plan and By-Law Amendment
adopted by Magma's Board, or seeking
21
<PAGE>
to require Magma to redeem the Stockholder Rights Plan, on the ground that they
were adopted and/or not redeemed by the Board in violation of its fiduciary
obligations to Magma. Indeed, absent a negotiated merger agreement, one of the
many conditions imposed or to be imposed by California Energy in its Offer to
Purchase and Schedule 14D-1 is a determination that the Stockholder Rights Plan
is invalid or inapplicable to its tender offer. Magma contends that the
Stockholder Rights Plan and By-Law Amendment have been adopted and will be used
consistent with its Board's fiduciary duties to act in the best interests of the
shareholders of Magma, as well as in the interests of other constituencies,
including employees, customers and suppliers, which the Board may consider under
Nev. Rev. Stat. (S) 78.138.
39. An actual controversy has arisen and therefore now exists between
Magma and California Energy concerning the Stockholder Rights Plan and the By-
Law Amendment.
FOURTH CAUSE OF ACTION
----------------------
(Violation of the Williams Act, 15 U.S.C. (S) 78n(d))
-----------------------------------------------------
40. Magma incorporates by reference paragraphs 1 through 39
inclusive, as though fully set forth herein.
41. By purposefully, recklessly or negligently failing to fully,
fairly and accurately identify Kiewit as its co-bidder, and failing to provide
all material facts regarding Kiewit required by federal law, California Energy
has violated Section 14(d) of the Williams Act, 15 U.S.C. (S) 78n(d) and the
rules and regulations of the SEC promulgated thereunder.
42. If California Energy is allowed to proceed with its tender offer
in violation of the Williams Act and SEC rules promulgated thereunder,
irreparable injury will result to Magma and its shareholders. Accordingly,
Magma is entitled to a preliminary and permanent injunction against California
Energy's tender offer.
FIFTH CAUSE OF ACTION
---------------------
(Violation of the Williams Act, 15 U.S.C. (S) 78n(e))
-----------------------------------------------------
43. Magma incorporates by reference paragraphs 1 through 42
inclusive, as though fully set forth herein.
22
<PAGE>
44. As set forth more fully above, in connection with its tender
offer, California Energy has intentionally, recklessly or negligently made
numerous untrue statements of material fact, as well as omissions of material
fact necessary in order to make the statements made, in light of the
circumstances in which they were made, not misleading, in violation of Section
14(e) of the Williams Act, 15 U.S.C. (S) 78n(e), and SEC rules and regulations
promulgated thereunder.
45. If California Energy is allowed to proceed with its tender offer
in violation of the Williams Act and SEC rules and regulations, irreparable
injury will result to Magma and its shareholders. Accordingly, Magma is entitled
to a preliminary and permanent injunction against California Energy's tender
offer.
SIXTH CAUSE OF ACTION
---------------------
(Violation of the 1934 Act, 15 U.S.C. (S) 78(a))
------------------------------------------------
46. Magma incorporates by reference paragraphs 1 through 45
inclusive, as though fully set forth herein.
47. As set forth more fully above, in connection with its proxy
solicitation, California Energy has intentionally, recklessly or negligently
made numerous untrue statements of material fact, and has failed to disclose
material facts, in violation of Section 14(a) of the 1934 Act, 15 U.S.C. (S)
78n(a), and SEC rules and regulations promulgated thereunder.
48. If California Energy is allowed to proceed with its proxy
solicitation in violation of the 1934 Act and SEC rules and regulations,
irreparable injury will result to Magma and its shareholders. Accordingly,
Magma is entitled to a preliminary and permanent injunction against California
Energy's proxy solicitation.
PRAYER FOR RELIEF
-----------------
WHEREFORE, Magma prays for judgment against defendants as follows:
(a) For a declaratory judgment that the Stockholder Rights Plan and
the By-Law Amendment are valid, binding and need not be redeemed or invalidated
in connection with California Energy's tender offer;
23
<PAGE>
(b) For a declaratory judgment that the Business Combination Law, Nev.
Rev. Stat. (S)(S) 78.411-.444, is valid and not in violation of the Commerce
Clause of the United States Constitution, Art. I, (S) 8, cl. 3;
(c) For a declaratory judgment that the Business Combination Law, Nev.
Rev. Stat. (S)(S) 78.411-.444, is valid and not in violation of the Supremacy
Clause of the United States Constitution, Art. VI, cl. 2;
(d) For a declaratory judgment that the disclosures made in connection
with California Energy's tender offer violate Sections 14(d) and 14(e) of the
Williams Act, 15 U.S.C. (S) 78n(d), (e), and the rules and regulations
promulgated thereunder by the SEC;
(e) For a preliminary and permanent injunction prohibiting California
Energy and any and all persons acting on its behalf or in concert with it from
proceeding further with the tender offer unless and until it provides full and
forthright corrective disclosures of all material facts and Magma's shareholders
have had sufficient time and opportunity to digest such information;
(f) For a declaratory judgment that the disclosures made in connection
with California Energy's proxy solicitation violate Section 14(a) of the 1934
Act, 15 U.S.C. (S) 78n(a), and the rules and regulations promulgated thereunder
by the SEC;
(g) For a preliminary and permanent injunction prohibiting California
Energy and any and all persons acting on its behalf or in concert with it from
proceeding further with the proxy solicitation unless and until it provides full
and forthright corrective disclosures of all material facts and Magma's
shareholders have had sufficient time and opportunity to digest such
information;
(h) For costs of suit and reasonable attorneys' fees; and
24
<PAGE>
(i) For such other relief as the Court may deem just and proper.
Dated: October 17, 1994 Respectfully submitted,
JONES, JONES, CLOSE & BROWN, CHTD.
---------------------------------------
M. CELESTE LUCE
290 South Arlington Avenue, #200
Reno, Nevada 89501
Telephone: (702) 322-3811
Dean S. Krystowski
Patrick D. Robbins
David L. Anderson
M.J. Tony Paikeday
SHEARMAN & STERLING
555 California Street, 20th Floor
San Francisco, California 94104
Telephone: (415) 616-1100
Attorneys for Plaintiff Magma
Power Company
25
<PAGE>
FOR IMMEDIATE RELEASE
CONTACT: Thomas Davies
Andrea Bergofin
Kekst & Company
(212) 593-2655
MAGMA SUES CALIFORNIA ENERGY
San Diego, CA October 17, 1994 -- Magma Power Company (NASDAQ:MGMA)
announced today that, as an additional step to protect its shareholders, it
filed a securities fraud lawsuit against California Energy in federal court in
Reno, Nevada. In the lawsuit, Magma identified a series of false and misleading
statements made by California Energy in connection with (a) its unsolicited,
coercive and highly conditional tender offer for approximately 51% of Magma's
outstanding common stock, and (b) its proxy solicitation designed to obtain
approval of its inadequate offer. The lawsuit seeks a preliminary and permanent
injunction against California Energy's tender offer and proxy solicitation
unless and until it provides full, fair and forthright information to Magma's
shareholders.
Ralph W. Boeker, Magma's president and chief executive officer, said: "We
cannot sit by and watch California Energy make an illusory case for its
inadequate offer based on a combination of misstatements and coercive tactics.
As it became increasingly apparent to us that California Energy was not
honoring its disclosure obligations, we took this action to protect the right of
our stockholders to make an informed decision based on full and accurate
disclosure, not false and misleading statements."
In the lawsuit, Magma alleges that California Energy has violated federal
laws regulating tender offers and proxy solicitations by, among other things:
- Failing to reveal material facts regarding any preferential or other
business arrangements with Peter Kiewit Sons', Inc. and Kiewit Energy
Company (collectively "Kiewit"). Kiewit controls approximately 43% of
California Energy's stock on a fully-diluted basis and is a joint venture
participant in a number of California Energy's international power
projects.
Magma alleges that Kiewit is a co-bidder of California Energy under the
tender offer rules and is therefore obligated to provide shareholders with
necessary information regarding Kiewit's background, finances, purposes or
plans, and the benefits it expects to receive through a combination of
California Energy and Magma.
<PAGE>
- Falsely stating that Magma's customers have had a highly favorable
reaction to California Energy's offer when, in fact, a number of Magma's
key partners have voiced concern over any combination of the two entities.
- Falsely stating that California Energy has made its offer based solely on
publicly available information when, in fact, California Energy has had
access to confidential information concerning Magma and its assets.
- Falsely stating the total cost that Magma's shareholders will incur under
certain severance agreements, the Goldman Sachs advisory fee and
litigation expenses associated with responding to California Energy's
offer. California Energy claims these costs to be between $18 million and
$24 million ($.75 and $1.00 per share). In fact, it is clear from the
severance agreements and the Goldman Sachs fee arrangement -- which is
publicly available -- that the payments will be nowhere close to that
amount. Cash payments under the severance agreements (assuming all were
triggered) would amount to approximately $5 million. In order for that sum
and the Goldman Sachs fee to total the amount claimed by California
Energy, California Energy would have to be offering to pay between $52 and
$63 per share for Magma common stock.
Magma said California Energy has been even less candid in its proxy
solicitation materials. In its suit, Magma notes that, through its
solicitation, California Energy is seeking to add four seats to Magma's board,
to elect its hand-picked designees to those seats, and to amend Magma's by-laws
in a manner intended to provide California Energy and its designees with veto
power over any material business activity of Magma.
A successful solicitation could give California Energy access to Magma's
confidential information and strategic plan which could allow California Energy
to obtain competitive advantages in the marketplace regardless of whether any
combination of Magma and California Energy ever occurs. The suit further notes
that California Energy owns only about 1% of Magma's stock, which it bought just
a few weeks ago in anticipation of its bid to acquire Magma, yet through the
proxy solicitation it seeks to control Magma and to punish Magma's stockholders
if they do not succumb to California Energy's inadequate, coercive offer.
<PAGE>
Magma is a leader in the geothermal industry. The company currently
operates seven geothermal power plants in Southern California on geothermal
leaseholds and fee interests held by the company, and holds additional
geothermal leasehold and fee interests in other parts of California and Nevada.
Magma is currently constructing a large power plant in the Philippines with a
total capacity of 231MW.
<PAGE>
Participant Information
The following information is provided pursuant to Section 14(a) of the
Securities Exchange Act of 1934, as amended, and Rule 14a-12(a)(3) thereto. The
participants in the solicitation are Magma Power Company, and the following
directors and officers, who in the aggregate are deemed to beneficially own less
than 2% of the outstanding shares of Magma common stock: James D. Shepard, Paul
M. Pankratz, Thomas C. Hinrichs, Ralph W. Boeker, Louis A. Simpson, John D.
Roach, Roger L. Kesseler, Lester L. Coleman, William R. Knee, Bent Petersen and
J. Pedro Reinhard and Jon R. Peele, Wallace C. Dieckmann, Kenneth J. Kerr and
Trond Aschehoug. No participant individually owns more than 1% of the
outstanding shares of Magma's common stock. Messrs. Kesseler, Knee and Reinhard
are employees of The Dow Chemical Company ("Dow"). Dow is the beneficial owner
of 5,032,430 shares of Magma's common stock, of which 4,000,005 shares are held
in escrow to satisfy certain exchange rights under an existing Dow note
indenture. Dow retains the right to vote the shares placed in escrow. In
addition, the Company is a party to a technical services agreement with Dow
pursuant to which the Company has made payments for technical services in the
amounts of $575,000 for 1993 and has agreed to make payments of $550,000 for
1994 and thereafter in annual amounts reduced by $50,000 each year to $300,000
for 1999. The Company is also a party to an engineering and construction
management services agreement with Dow Engineering Company. The Company believes
that the technical services agreement and the engineering and construction
management services agreement are on terms at least as favorable to the Company
as would be available from an unaffiliated third party. Mr. Shepard is a co-
trustee of the B.C. McCabe Foundation, which beneficially owns 2,752,641 shares
of Magma's common stock. Mr. Shepard disclaims beneficial ownership of such
shares.
<PAGE>
THANKS, BUT
---
NO THANKS, MR. SOKOL!
---------
We understand why California Energy wants to buy Magma Power for $35 per share
in cash and stock--it would be getting a great company at a bargain price that
does not remotely reflect Magma's value.
The value and benefits of Magma's competitive advantages, initiatives and
projects, some of which have only recently been announced, are not yet reflected
in our stock price--and certainly are not reflected in California Energy's two-
tiered, low-ball offer.
CALIFORNIA ENERGY'S OFFER MAKES NO FINANCIAL OR STRATEGIC SENSE FOR MAGMA AND
ITS STOCKHOLDERS.
IT'S INADEQUATE: It does not compensate stockholders for the future growth and
profitability we expect to generate from expanding our existing domestic
operations, developing our international opportunities, and capitalizing on our
outstanding technological, financial and competitive position.
IT'S COERCIVE: It attempts to stampede stockholders into selling their shares
for the cash portion and leads to a back-end merger in which stockholders would
be left with shares in an even more highly leveraged California Energy--a
company that will be burdened by high debt service at a time when it will need
free cash to invest in the future.
IT'S OPPORTUNISTIC: It's a blatant attempt by highly-leveraged California Energy
to buy Magma based on the strength of Magma's clean balance sheet and doesn't
protect Magma stockholders from the future risk associated with their resulting
ownership of California Energy stock. Our stockholders--not California
Energy's--should reap the benefits of our financial strength.
IT'S HIGHLY CONDITIONAL: It contains thirteen conditions, including obtaining
more than $300 million of secured debt financing as well as the approval of
California Energy stockholders.
IT'S BAD FOR BUSINESS: California Energy incorrectly assumes that two plus two
is four when, in our industry, two plus two may very well be three. That's
because we think international customers are reluctant to concentrate their
geothermal business with one company.
ACCORDINGLY, MAGMA'S BOARD OF DIRECTORS--WITH OVER 30 PERCENT OF THE STOCK
REPRESENTED ON THE BOARD--HAS UNANIMOUSLY CONCLUDED THAT STOCKHOLDERS' INTERESTS
ARE BEST SERVED BY MAGMA CONTINUING TO PURSUE ITS HIGHLY SUCCESSFUL BUSINESS
STRATEGY.
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MAGMA HAS AN IMPRESSIVE RECORD OF GENERATING PROFITABLE GROWTH FOR ITS
STOCKHOLDERS AND HAS BRIGHT PROSPECTS FOR THE FUTURE.
MAGMA'S SUPERIOR GROWTH IS EXPECTED TO CONTINUE. We have increased earnings at
a 20 percent compound annual growth rate since 1990 and more than doubled our
equity base in the past five years.
MAGMA HAS SEVERAL OPPORTUNITIES TO ENHANCE THE EARNINGS AND CASH FLOW OF ITS
CURRENT PROJECTS. We have in place an aggressive cost reduction program
targeted at cutting costs for existing plants by 40 percent and dramatically
lowering operating capital costs for all our new, larger-scale plants.
MAGMA HAS SEVERAL NEW DOMESTIC PROJECTS IN DEVELOPMENT. We are expanding
existing plants, building new facilities as well as developing capacity at our
strategically positioned Salton Sea resource.
MAGMA IS A LEADER IN A FAST-GROWING INTERNATIONAL GEOTHERMAL INDUSTRY. We are
currently constructing a large plant in the Philippines and already have a
contract for a second plant. We also have two Indonesian contracts which we
expect to sign imminently and are actively pursuing further global geothermal
opportunities.
MAGMA'S COMPETITIVE ADVANTAGES SOLIDLY POSITION THE COMPANY TO SECURE FUTURE
PROJECTS AND ACHIEVE SUPERIOR GROWTH. Our singular focus, strong financial
condition, ability to lower costs through technological improvements, proven
development expertise and excellent in-house technical capabilities place Magma
in the forefront of the geothermal power production industry.
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THAT'S WHY MAGMA STOCKHOLDERS SHOULD SAY THANKS,
BUT NO THANKS, TO CALIFORNIA ENERGY'S OFFER!
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[Magma logo appears here]
If you have any questions or need further assistance, please call our
information agent, GEORGESON & COMPANY, INC. toll-free at 1-800-223-2064.
